Abstract

The discovery of natural resources in a developing country is not always the good news it appears to be. Resource-rich countries, particularly emerging and developing economies, face the significant challenge of using their natural wealth to improve the living standards of average citizens. Too often the wealth is wasted through weak institutions and corruption, a phenomenon referred to as the ‘resource curse’. One increasingly popular mechanism for dealing with the curse is the commodity-based sovereign wealth fund (SWF). While it is not a panacea, in the right circumstance SWFs can be a very useful tool for managing resource revenues and facilitating long-term economic development. However, SWFs will achieve these lofty objectives only if the appropriate design and governance systems are in place. In this paper we illustrate the design principles and governance practices required to set up a successful SWF.

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